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The Price We Pay: Inside the World of Big Corporate Tax Havens and Offshore Finance (Pt. 2)

Web ExclusiveNovember 05, 2015
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“The Price We Pay” is a new documentary that tackles the issue of tax havens and their cost to the societies losing out on trillions of dollars in revenue. In this web exclusive, we continue our discussion with the film’s director, Harold Crooks, and economist James Henry. “To reconstruct a system of progressive taxation, which is necessary for the restoration of an equitable society, we have to find new ways—new forms of taxing and taxes on wealth, tax on finance,” Crooks said. “And so, the financial transaction tax, or, as other people know it, the Robin Hood tax, is a very, very important issue for ordinary people to be thinking about and organizing around.”

Watch Part 1 of interview

Related Story

StoryNov 03, 2015The Price We Pay: As US Becomes a Top Tax Haven, How Hiding Wealth Offshore Robs the People at Home
This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: This is Democracy Now!, democracynow.org, The War and Peace Report. I’m Amy Goodman.

When it comes to sheltering the wealth of the super-rich, the United States is moving up the ranks. A new study says the U.S. is now the third most secretive country for offshore finances, trailing only Hong Kong and Switzerland. A new documentary tackles the issue of tax havens and their cost to the societies losing out on trillions of dollars in revenue, increasing inequality. The film is called The Price We Pay.

Let’s go to a clip. This is noted economist Thomas Piketty, author of the widely cited Capital in the Twenty-First Century.

THOMAS PIKETTY: [translated] Corporate tax—typically tax on company profits—can no longer be levied separately by the 27 European Union countries. At least the eurozone countries, Germany, France, Italy, Belgium and Spain, must join forces to levy corporate taxes with one declaration, one base rate. Otherwise, corporate taxation will be a thing of the past in the next 10 to 20 years.

AMY GOODMAN: That’s noted French economist Thomas Piketty in this new documentary called The Price We Pay. We’re joined by its director, Harold Crooks, and James Henry, former chief economist at McKinsey & Company, lawyer, senior adviser with the Tax Justice Network.

It’s great to have you with us for Part 2 of this conversation.


AMY GOODMAN: Harold Crooks, the significance of what Piketty says?

HAROLD CROOKS: Well, I actually interviewed Piketty one year before he was maybe the most noted and famous economists on the planet. And the reason I went to Paris to interview him was that at that time, within a much smaller circle of academics and policy people, what he was best known for was his study of income inequality in the United States.

And what he discovers, and what he—we illustrate in the film as he talks about it, is this curve that goes from 1913 to the present. And what we see in that curve is the decline of income inequality from the First World War up until the Thatcher-Reagan era, the Thatcher-Reagan counterrevolution against the social welfare state—in the States called, you know, the New Deal and all that sort of thing—and then its acceleration from that period up to the present, so that we return to levels of income and wealth inequality that are equivalent to what was in place at the beginning of the First—around 1913, before the First World War.

Now, what’s critical about that is, progressive taxation, for reasons we don’t have time to go into now, but was actually invented during the First World War—ideas about equality of sacrifice and conscription of wealth. And that was the platform—and the spread of progressive taxation throughout the 20th century, up through the Second World War, was the platform or underpinning of the development of a middle class and a prosperous working class.

The offshoring of the world’s wealth totally blows a hole in that. And so, even as we have politicians—President Obama himself, a half a year or so ago, described income inequality as the defining issue of our age. And politicians claim that they’re committed to doing something about it. But they do not admit the extent to which they do not have the tools to do anything about it. And that is because of the hole that the offshoring—the unregulated global space in which money is allowed to operate that has blown a hole in what I call the major social innovations of the 20th century: the middle class and Social Security.

AMY GOODMAN: Let’s go to another clip from The Price We Pay. This is sociologist Saskia Sassen.

SASKIA SASSEN: Why bother with being illegal, like your average little household might be illegally avoiding certain taxes? Why bother with illegality? You can navigate that regulatory fracture, as I call it, that space in between legal and illegal.

AMY GOODMAN: That’s sociologist Saskia Sassen. Economist James Henry, respond to what she says.

JAMES HENRY: Well, I think what she’s pointing to is the fact that this is contagious, that if the elite and the largest companies on the planet can get away with moving their wealth and assets offshore to jurisdictions, you know, where they’re not paying tax, then ordinary citizens are going to begin to increase their noncompliance with tax code. And we’ve seen that since the 1970s. The United States was probably the pioneer in progressive taxation—on income tax 1913. You know, for years and decades, we had a very progressive income tax, wealth tax. But this is partly—this inequality has been man-made, person-made. It’s been increasing since the Reagan era. And we’ve also seen an explosion in the haven industry since that very period. So it isn’t high taxes that are driving people to havens. It is the havens that are driving progressivity down.

AMY GOODMAN: I want to turn to remarks on taxation President Obama made earlier this year during his State of the Union address.

PRESIDENT BARACK OBAMA: As Americans, we don’t mind paying our fair share of taxes, as long as everybody else does, too. But for far too long, lobbyists have rigged the tax code with loopholes that let some corporations pay nothing while others pay full freight. They’ve riddled it with giveaways that the super-rich don’t need, while denying a break to middle-class families who do.

AMY GOODMAN: That’s President Obama. Harold Crooks, why you included him in the documentary and how this directly relates to the issue of inequality?

HAROLD CROOKS: Well, it relates to it because, as Jim said, the United States, from the First World War up until the advent of the Reagan era, had very, very high levels of marginal tax on individuals and significant taxes on corporations. But with this space that’s been created, this offshore space, corporations and lobbyists and their allies in the major accounting firms have been able to undermine that by moving—by moving amounts of wealth almost beyond measure.

AMY GOODMAN: I mean, you have a great graph, a chart, in the film, where you show inequality in the United States and how it was decreasing and then just the massive almost straight line up, but definitely a steep ski slope up for how it’s increasing today.

HAROLD CROOKS: Yeah, that’s Piketty’s curve based on his research. And that is very, very much related—so, in other words, there’s a very direct relationship between the acceleration of inequality and the taking apart of progressive taxation.

AMY GOODMAN: Let’s turn to another clip from this amazing documentary, The Price We Pay. This is Nicholas Shaxson, author of Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens.

NICHOLAS SHAXSON: Nothing real is really happening in these places. You don’t get very much real management of, you know, hedge funds. The real people who are doing real stuff are in New York or London or Paris or wherever.

AMY GOODMAN: Nicholas Shaxon. James Henry, his point?

JAMES HENRY: Well, I think, you know, the notion that this is “offshore” is a fiction, in a sense. The key havens here for financial assets are actually onshore. It’s Switzerland, the United States, the U.K. and its spiderweb. And so, there’s very little money sitting in the Cayman Islands compared to what’s invested in first-tier financial markets. The developing countries are actually net creditors of the First World when you add up all the assets that are offshore.

AMY GOODMAN: How did the U.S. rise so fast in this secretive tax-sheltering haven system?

JAMES HENRY: Well, one of the big roles in this came about in the 1970s and '80s when there was a developing world debt crisis. And our biggest banks were big lenders to Mexico and Brazil and Argentina. They also set up, at the same time, under-the-cover private banking operations to take money out of these countries. So they were building these huge mechanisms for protecting the wealth of the elite of the developing world. So it was an involvement, I think, of the United States in that whole system that goes back at least as far as the 1950s. But, you know, there's really three camps here that have been playing a lead role. It’s the U.K., the United States—Switzerland is another huge player, especially in kleptocracy. And this has to be viewed really as a global industry that we’re up against. It’s not just an archipelago of individual havens. It’s a network, and a seamless network.

AMY GOODMAN: I want to turn to the firefighter, a deeply moving part of the film, in The Price We Pay. Sam Holloway of the Chicago Fire Department explains how he suggested a financial transaction tax to Mayor Rahm Emanuel. But first, this is the mayor, Emanuel.

MAYOR RAHM EMANUEL: If we don’t take care of the inherited past, be honest with our employees, be honest with our taxpayers, we’re going to be stealing from our future. And that’s just the wrong course to do.

SAM HOLLOWAY: So, I don’t know what possessed me. I guess I’m sometimes a troublemaker once in a while. So I sort of raised my hand, and I said, “You know, I’ve got an idea. While our pension fund has been suffering, and people have been losing their homes, we know there’s one sector of our economy that’s doing pretty well, because we bailed them out. It’s the banks. It’s the investors. If we were to institute a tiny financial transaction tax on the Board of Trade and the Mercantile Exchange, we could recoup some of these losses. And we’ll be getting it back from the people who squandered it in the first place. They won’t notice it’s missing. It could just be a tiny tax, and you could just bring in tremendous amounts of revenue and solve some of these budget crises.” And he said, “I don’t support that.”

AMY GOODMAN: That’s Chicago firefighter Sam Holloway in The Price We Pay. Harold Crooks, talk about him.

HAROLD CROOKS: Well, Sam—we couldn’t have known it while we were making the film, but everywhere we show the film, from Salt Spring Island, Vancouver, to Kiev, Ukraine, people ask about Sam. Every interview, I’m asked about Sam. People want clips of Sam. He’s a wonderful, wonderful man, and he really is helping us in the film introduce the issue of what is to be done about all this.

Because corporate income tax itself remains a very politically problematic issue, because multinational corporations today, as someone says in the film, surround the nation-state the way the Roman Legion surrounded Asterix the Gaul’s village in the comic book, it’s very, very difficult to mobilize ordinary people around corporate income tax issues. But it is—what we’re finding is, organizing people around the issue of financial transaction taxes, which then become Robin Hood taxes, which have all sorts of positive societal uses, is something that really has legs. And there’s a tremendous amount of activism, not only in the United States, but around the world.

And what is critical about what Sam has introduced here is that—and we were talking about Piketty a little earlier—it’s understood that in the 21st century, to restore—to reconstruct a system of progressive taxation, which is necessary for the restoration of an equitable society, we have to find new ways—new forms of taxing and taxes on wealth, tax on finance. And so, the financial transaction tax, or, as other people know it, the Robin Hood tax, is a very, very important issue for ordinary people to be thinking about and organizing around. And so, that’s why it’s in the film.

AMY GOODMAN: Well, this is—this is clearly an issue in this country, especially in this race right now, the presidential race. Last month, leading Democratic presidential contenders addressed the Iowa Democratic Party gathering. It’s known as the Jefferson-Jackson Dinner. The high-profile party dinner has been a defining moment in the campaign back to ’75. This is former secretary of state, of course, Democratic presidential contender, Hillary Clinton.

HILLARY CLINTON: There is something wrong when the top 25 hedge fund managers earn more in a year than all the kindergarten teachers in America combined, or when top CEOs make 300 times what a typical worker does, or when corporate profits soar but employees don’t share in those profits, when it’s easy for a big corporation to get a tax break, but it’s still too hard for a small business to get a loan.

AMY GOODMAN: That’s Hillary Clinton running for president. James Henry?

JAMES HENRY: Well, there’s tremendous money on the wrong side of this issue. We just saw two weeks Carl Icahn threaten to set up a $150 million fund to influence Congress.


JAMES HENRY: On corporate taxes, to reduce them further, to eliminate the corporate income tax almost completely. So, what’s going on here is that, you know, this is a global problem. The Sam Holloways of the world are coming out of the woodwork to stand up and say, “This is enough.” If—

AMY GOODMAN: Explain the Robin Hood tax. Explain the financial tax.

JAMES HENRY: The Robin Hood tax, in a nutshell, would be a very tiny percentage of every currency purchase, of every stock transaction. It would be almost unnoticeable to the retail investor, like 0.0125 percent that would be collected every time there’s a trade. What we’ve seen is an explosion of trading and speculative trading in the last decade. You know, there’s now darknets that control 85 percent of all stock transactions. These are controlled by the top six banks. So the financial transactions tax was originally proposed by James Tobin of Yale, and actually Keynes back in the '30s, in order to slow down this kind of fast capitalism that's just pure speculation.

AMY GOODMAN: And who’s fighting it?

JAMES HENRY: Well, the big banks that are involved in the trading. Credit Suisse and UBS are—you know, they own 25 percent of the darknets that are now doing high-frequency trading.

AMY GOODMAN: What are darknets?

JAMES HENRY: Darknets are the—that’s the place most stock transactions and most bond transactions are taking place right now. You don’t see them. They’re not retail stock exchanges like the New York Stock Exchange. They’re off the radar. And the SEC and the CFTC, these are regulatory agencies that are trying to get a hold of this activity. But these have grown up in the last five years. It’s basically submerged all of the most important trading activity that’s going on in the world economy, something like $60 trillion a day in derivatives that’s not visible. But the tax idea is that enormous revenue is at stake. But we could also slow down some of the speculative activity, that’s completely nonproductive.

AMY GOODMAN: Let’s go to another clip from The Price We Pay, featuring Labour MP Margaret Hodge and vice president of Google UK, Matt Brittin.

MATT BRITTIN: Like any company, we’re required to do two things: one, to play by the rules, and when you set up internationally, you need to make decisions about how to protect your intellectual property and how to organize; and secondly, to manage our costs efficiently in order to satisfy our shareholders. And our goal as a company is to—

MARGARET HODGE: So you’re minimizing your tax even though it’s unfair to British taxpayers.

MATT BRITTIN: It’s not unfair to British taxpayers. We pay all the tax you require us to pay in the U.K. We paid 6 million of tax last year.

MARGARET HODGE: Yeah, maybe. We’re not accusing you of being illegal. We’re accusing you of being immoral.

AMY GOODMAN: Now, what about that, what the British Labour MP Margaret Hodge says to the vice president of Google—”We’re not accusing you of being illegal. We’re accusing you of being immoral”—Harold Crooks?

HAROLD CROOKS: Well, I think something that has disappeared, at least until recently with the advent of economists like Thomas Piketty, historically economics and the teaching of economics was rooted in moral philosophy. What is an economy for? You know, who is it to serve? And we have to—we have to come back to addressing that issue. And the inequality issue is going to force us to do it. And as Jim says in the film, reverse-engineering the kinds of taxation and the forms of taxation that are appropriate for the 21st century are technical issues. We can find Jim and a lot of other people—David Cay Johnston, who is a frequent guest on your show, is looking into forms of progressive taxation for the 21st century. But the political will has to be there. And political will is ultimately a—you know, comes out of moral and ethical considerations. So, you know, that is where we’re left.

AMY GOODMAN: In The Price We Pay, Jaron Lanier is very interesting, the computer scientist and author.

JARON LANIER: Kodak had hundreds of thousands of employees—really good, solid, middle-class jobs. Kodak and Polaroid both went bankrupt. The new world of photography is Instagram, which had 13 employees and sold for a billion dollars to Facebook. Facebook is a giant public company controlled by one person. So what we’re seeing is the use of digital networks to create intense, unbelievable, unprecedented concentrations of wealth within the market system, which is no longer the market system at all.

AMY GOODMAN: Computer scientist Jaron Lanier, and author. James Henry?

JAMES HENRY: Well, I think in addition to inequality, the world community faces unprecedented collective costs. We have climate change, at least $100 billion a year that’s going to have to go to countries that are most affected by that. We have huge security problems all over the planet. We have the newly announced Sustainable Development Goals for fighting poverty. These are very costly collective expenditures. If we’re going to allow the richest people on the planet and their companies to basically offshore all their wealth and not pay taxes, then the costs of those collective expenditures are going to fall on the middle class and the poor. You know, historically, the progressive income tax really arose to pay for war efforts that we didn’t want to just put on the backs of the poor. I mean, everybody was funding World War II, World War I, as, you know, legitimate defenses against fascism or against imperialism. This, I think we’re in a period where we have mounting global costs and global problems, and we have to fund those through the tax system. We’ve tried other ways of funding, through debt and through inflation. Those don’t work. We need the tax system to become progressive again.

AMY GOODMAN: Brigitte Alepin from Quebec makes a very interesting point in The Price We Pay.

BRIGITTE ALEPIN: [translated] The nobility of the time didn’t pay taxes. And today we see a new nobility re-emerging, who legally no longer pay their fair share of tax. In those days, the whole tax burden fell on the commoners. And today, as a mother, I fear we are setting up the same fate for our children.

AMY GOODMAN: That is Brigitte Alepin from Quebec. The tax burden that fell on the commoners, the nobility of the time didn’t pay taxes. Are we going back to that time, Harold Crooks?

HAROLD CROOKS: Well, we’re definitely going back to that time. And it’s in the data of many economists, including Thomas Piketty, who says we’re going back to pre-First World War era’s levels of inequality. And I would just like to echo or reiterate I think the most profound point that Jim just made. Progressive taxation came into existence when the nations of the Western world were facing a huge crisis. And the crisis was the First World War, that was shaking societies to the roots. The young were going off to be slaughtered. And the rich and wealthy were asked to sacrifice equally on the home front. And I think—and the point that Jim was making: What are the equivalent challenges of the 21st century which we face as a global—as a global civilization? And we know what they are. They’re climate change, species extinction, inequality—and the list goes on and on. And I see the tax justice movement as responding to the crises of the 21st century by trying to bring about the restoration of progressive taxation throughout our societies and beyond, because, as Jim said, there is no other way, really, practically speaking, of confronting these multitude of crises.

AMY GOODMAN: How other countries deal, for example, Ireland, James Henry?

JAMES HENRY: Well, some of the world’s smaller countries have taken—seized the opportunity to try to become tax havens, and Ireland is one of them that’s been playing this game. But what they realized was, this actually got them into a lot of trouble, because kind of a finance curse in addition to being a resource curse. So if you look around the world today, Ireland is still recovering from the depths of the 2008 financial crisis. Ireland, you know, is basically now recognizing that it was a mistake to attract all this funny money and that it’s no substitute for a real strategy.

Another key player here is China. In the last—in 2014, there was more than $350 billion of capital flight from China going to these havens, going to the United States, Australia, other property markets. In August alone, $200 billion flew out of China. So they’re beginning to recognize that this world system of offshoring of wealth and allowing just unfettered discretion to multinational companies and investors is, you know, a system that we can’t afford. It’s outrageous, actually, for the poorest people on the planet to have to put up with the costs of climate change and development and security, and seeing the rich sort of wander off and enjoy a lifestyle on an unprecedented level.

AMY GOODMAN: We’re going to have to leave it there, and I thank you both for being with us. A fascinating film. It’s called The Price We Pay. The director is Harold Crooks. James Henry is the economist with the Tax Justice Network, former chief economist at McKinsey & Company, interviewed in the documentary, as well as many others, in The Price We Pay. This is Democracy Now! I’m Amy Goodman. Thanks for joining us.

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